Articles Posted in Bernard L Madoff Investment Securities

A Securities and Exchange Commission administrative law judge says that investment advisers Larry Grossman and Gregory Adams must pay over $6.3M in restitution and fines for misleading clients who invested in hedge funds tied to Ponzi fraud mastermind Bernie Madoff. Administrative law judge Brenda Murray issued her ruling last month.

The two investment advisers are Sovereign International Asset Management founder Larry Grossman and Gregory Adams, who agreed to buy Sovereign from Grossman in 2008. The firm filed for bankruptcy four years later.

Per the SEC administrative complaint, Grossman did not know that the two hedge funds that he primarily recommended to clients were linked to Madoff. The Commission contends that Grossman violated his fiduciary duties to his clients when he neglected to conduct due diligence on the funds, which were run by a man named Nickolai Battoo. Grossman also purportedly did not notify clients that he was getting paid $3.4 million in consulting fees and referral money for recommending certain funds. After Grossman sold Sovereign to Adams, the former owner continued working in several capacities at the firm and never actually told clients that the sale even happened.

David Kugel, who was a long time Bernard L. Madoff Investment Securities LLC (BMIS), has been charged by the Securities and Exchange Commission with fraud. Kugel is accused of making fake trades to keep Madoff’s multi-billion dollar Ponzi scam running. He has consented to settling the securities fraud charges.

The SEC claims that Kugel, who worked for Madoff for nearly 40 years, was asked by the Ponzi mastermind to turn backdated arbitrage trade information into fake trades. Kugel’s own BMIS account included backdated trades. While some of the trades imitated successful ondx made by Kugel for BMIS, others were founded on historical facts that he got from old newspapers.

Over a number of years Kugel even withdrew almost $10 million in profits from these bogus trades in his own BMIS. SEC New York Regional Office George S. Canellos claims that Kugel knew such profits were fake.

Two other people accused of setting up fake trades from the information that Kugel provided were Joann Crupi and Annette Bongiorno. Both allegedly asked him for backdated data about trades that added up to millions of dollars. They would then take the information and design trades that equaled those figures. These bogus trades showed up as trade confirmations on investors’ account statements.

The SEC filed securities charges against the two women last year. The Commission claims that Bongiorno regularly set up bogus books and records and misled investors via phone calls, trade confirmations, and account statements. She also is accused of setting up false trades in her own BMIS counts that allowed her to cash out millions of dollars more than what was put in. Meantime, Crupi was accused of deciding what accounts to cash out and which investors should receive checks as Madoff’s scam stood on the brink of collapse. The two women are facing criminal charges over their alleged involvement. They have denied any wrongdoing.

Prosecutors have filed parallel criminal charges against Kugel. On Monday, he pleaded guilty to six criminal counts, including securities fraud, conspiracy, and bank fraud. He will be sentenced in May.

Meantime, Irving Picard, who has been appointed as the trustee in charge of helping Madoff’s Ponzi victims from recouping their losses, is seeking at least $22.2 million from Kugel and his family.

Ponzi Scams
A Ponzi scheme can be described as a multi-level marketing operation. The director solicits investments while promising clients a given return rate. However, rather than paying investors from real profits, the principal from new investors is used to compensate earlier investors. Ponzi scams can result in devastating losses for investors once the money dries up.

SEC Charges Longtime Madoff Employee With Creating Fake Trades, SEC, November 21, 2011
Read the SEC Complaint (PDF)

Bernie Madoff Cronies Arrested, ABC News, November 18, 2010
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